Myself, I rather don’t see how it could work out that way, since I don’t see how, given the existence of different free communities organized on different economic principles, the people who end up as wage laborers in the capitalist enclaves are likely to stay there, if they have other places to go. But who knows? The point is we both share a commitment to bring us to a situation where we can find out.

Looking forward to the book.

I would definitely agree that the question of force is essential here. There is a big difference between a group of people voluntarily creating a common stockpile, and an accounting system to keep track of inputs and outputs, allowing people to convert the value of one kind of input into another, and, say, the same system made compulsory by some central power, let alone a tax system that basically creates money by declaring that only certain things are payable in taxes. This is one reason why it’s very hard to say when a “state” first appears in Mesopotamia. Early on, there were temples and palaces each running their own bureaucratic economy, alongside clans that were basically self-governing, probably things like independent guilds. There was no monopoly of coercive force or single court of high appeal, etc. So how much of it was voluntary, and how much not, and when did one start shading into the other? At what point did land “owned” by the temple become different than land “owned” by a clan? At what point did the palace claim to have certain property-like claims to everything? It’s never clear.

War and conquest clearly had a lot to do with it. In much of the ancient world (Egypt is the big exception — there was a very clearly centralized state from early on in Egypt), there weren’t even really taxes. There was tribute on conquered populations, but actual free citizens of Uruk, or Lagash, or Athens, or even early Rome, didn’t pay taxes to the government, because in a sense they were the government. Rather they were more likely to have received benefits distributed from the stockpiles — especially those built up from war (whether Laurion silver in Athens, worked by slaves, or the Roman bread distributions from Egyptian tribute grain, etc.)

As for the social currency — well, you’d think it would work like that, and there were some places where the social currency was freely convertible into consumables (as I mentioned, the Yurok in California or Kapauka in New Guinea are classic examples of stateless societies where everything could be acquired by money), but the majority kept such spheres assiduously apart. Most of the Eastern Woodlands societies that used wampum and similar shell beads or quills for instance used a totally different logic for the distribution of food. It was even organized by different people — wampum mainly by men, food and tools and shoes etc almost exclusively by women. So if you wanted moccasins, you went to your longhouse women’s council, and they decided whether to make or give you some; currency had nothing to do with it. This was true during famines as well, incidentally, when the laws of hospitality were if anything intensified. Now, when wampum came to be used not just in international political negotiations, treaties, bloodwealth, and the like (by international here I mean between Indian nations), but in international trade, with colonists (it never seems to have been used as currency within Indian nations), then, yes, its value came to fluctuate against the main trade goods, which in this case were beaver pelts. But such social currencies were not necessarily used in long-distance trade, and, if they were, that trade was not always that important.

What’s interesting about the case of Mesopotamia is that you can see all the elements coming together in the form of money that developed there, which was based on some kind of general agreement — that is, not imposed by any central political authority, because there wasn’t any — to create a fixed rate of exchange between silver and grain. That is (1) what had at first at least been voluntary stockpiling of the Iroquois variety, except rather than women’s longhouse councils it was temples and then later palaces, (2) the same money of account being used to organize the — increasingly not-quite-so-voluntary — stockpiles as was used as a common standard of value and medium of exchange in long-distance trade, (3) this somehow gradually coming to incorporate the existing social currencies (probably I’d guess at first sheep and cattle, but also silver), presumably through the increasingly centralized authorities taking over and systematizing legal codes.

That’s probably the most convincing reconstruction of how informal credit systems got converted into exact money of account, by the way — legal penalty systems, which could often be exquisitely detailed and elaborate, even in stateless societies, as the famous “barbarian law codes” in Europe also illustrate. It makes sense. To go back to the myth of barter scenario: if I want a new pair of shoes, my neighbor is a shoemaker, and he doesn’t want anything I have at the moment, I can just ask him a favor, and he’ll say, sure, and next time he needs something I have that seems roughly ballpark equivalent (you’re quite right about this) he’ll be surely dropping by. So “gift economies” generally have ranks of types goods that are more or less the same as each other, and that’s all you need. However, if my pigs get loose and eat all his strawberries, or especially, if he gets into a drunken brawl with my brother and my brother comes out of it with one less eye, I’m going to want an exact equivalent, and not a penny less. But this is rather a long story.

Granting that formal institutions were involved early on with currency, I suppose the question comes down to the definition of a state. It seems to me that a bullion warehouse issuing receipts becomes a very different animal if it is voluntary or compulsory.

The distinction is similar to that between free-banking and state-run banking. So a voluntary system of warehousing, where the temple, say, is offering to safeguard your bullion in return for either interest or some rate of debasement might, to the extent there is freedom of withdrawal, maintain currency value. That is, even with debasement, insofar as it is restrained by a concern to retain and attract clients, a temple can be seen as, roughly, combining warehousing and insurance services.

On the other hand, if the warehousing is compulsory (eg territorial monopoly via the state or a territorially monopolistic temple or state religion), then one might expect the warehouser to be no longer providing an insurance service; rather they would be tempted to violate the integrity of the bullion content of coins. In such a situation, one might expect either private warehousers to arise (often goldsmiths), or a reduction in merchant activity due to insecurity of bullion values (eg commercial activity declines or expatriates).

I would assume that early currencies, if generally used to mark ceremonial debts, were still subject to a (fluctuating) rate of exchange with some commodity, typically food or some common tool. So my tribe killed your predatory lion, your brave married our squaw, so we’ve got some balance in the account, and when the hungry times come potatoes go for some percentage of that balance. That exchange rate, I’d presume, would depend how hungry we are, how many potatoes you’ve got, in addition to the value of the original source (eg is the squaw a productive member of your tribe, or do you wish she’d stayed home). Naturally, I’d assume the exchange rate wouldn’t be too closely monitored; rather, like friends adding up the tab at a bar, would be ball-park exchange rates.

All evidence then is that money of account came first, and seems to arise with states. In the absence of states, one often encounters physical currencies (cowries, wampum, Solomon island feather money, etc), but it’s used primarily for making social arrangements and not acquiring commodities.

Presumably the two did somehow merge together in a lot of times and places — a story that’s largely lost, and can only be tentatively and retrospectively reconstructed — but that’s one thing I try to do in my book.

To the contrary, what anthropology reveals in stateless societies is what I’d call social currencies, that is, currency used primarily to arrange marriages, resolve disputes, pay penalties, give fees to curers or for ritual services, etc, but not to buy chickens and shovels. There are times and places (parts of Papua New Guinea, aboriginal California) where such currencies came to be used to buy and sell everyday items as well — particularly with strangers, but sometimes, with anybody — but nothing like the classic Smith-Jevons-Mengers picture of savages bartering things with their fellow villagers, let alone such barter turning into some kind of currency being used mainly to acquire material goods and services, has ever been observed. Anthropologists went looking for it, assuming Smith was right, but what they found was pretty much invariably the opposite: “gift economies” as Mauss called them, which could be interpreted, in some sense, as primitive credit systems, since they were all about lingering obligations.

As for the first state societies where we have records, actually, what we find is that everyday transactions are in fact taking place by credit and not by physical currencies. Mesopotamia is the best documented. A lot of the economy was based on centralized redistribution from palaces and temples, and silver came to be used as an accounting mechanism, to measure the value of goods being distributed within those bureaucratic systems, but there were also markets from quite early and perhaps from the very beginning. But the thing is, for everyday transactions, physical currency does not appear to have been used. Taverns for example operated on credit: you ran up a tab until, say, harvest time, it was calculated in silver, since that’s what the temples and palaces used to keep accounts, and you paid, usually, in grain, there being a fixed rate of equivalence between silver and grain that stayed stable for centuries. This wasn’t in defiance of market forces — it was that equivalence that made markets possible, since ordinary people didn’t have silver — and anyway the scales in use couldn’t even measure quantities of silver small enough for use in buying minor everyday objects, making it very clear ordinary market transactions were by credit as well. All you need to do is go to a West African market, for instance, to see how it probably worked: every vendor has their personal clientele of customers to whom they extend credit on a regular basis, they pay off their tabs periodically when they happen to come into something; this happens even in places where currency is available.

The thing is the “myth of barter” — as just about everyone but economists now call it — has been demonstrated false over and over again, by everyone who’s ever been a position to check some aspect of it empirically, whether historians, anthropologists, or anyone else. (The question is why economists still keep repeating it even though it’s obviously wrong.) Believe me, I’m an anthropologist, I would know. It is quite clear that credit actually did come before the use of material tokens in everyday transactions. That’s why we already have money (as a means of account) in 3500 BC, when the first Sumerian texts appear, but no actual coinage until maybe 2800 years later.

As for “just price,” I am well familiar with the Scholastic literature. This has nothing to do with that. Servet was referring to the fact that barter is normally something that one carries out with people with whom one has no ongoing moral relations (the very opposite of the sort of neighbors and fellow clansmen Smith imagined), people whom one would just as soon rob or even kill if one thought one could get away with it. Money transactions, in contrast, were often considered — and I’m speaking on the popular level here, about ordinary economic practice, not the sort of theory discussed in Universities at the time — a much more moral business, since it too was largely conducted by credit. (Coins were almost non-existent in even English villages in the late Middle Ages through the 17th century.) In credit arrangements, obviously, the honor and reputation of the contracting parties are always a necessary consideration. Anyway you might want to check Colin Muldrew on this — he’s the premier historian of the subject. Or wait for my debt book to come out in September.

I’m still not getting the “very deceptive” criticism. This may be down to our fields. As an anthropologist you may be interested in how people use money. In that sense, I agree that government-issued scrip backed by taxation is equivalent in use, particularly given legal tender laws, to bullion-backed scrip.

As an economist, however, I am most interested in currency as a store of value, in which case the counterfeitability of government-issued currency is a central concern.

As for the ‘bamboozle or rip off,’ I think you might be simplifying a rich literature involving just price. If you’re interested in the topic, I’d recommend Rothbard’s History of Economic Thought, volume 1. It’s tough going at times, but reading through the section on Aquinas gives a great overview.

Matt Ridley’s Origins of Virtue starts much earlier, looking at exchange in simple societies. If you haven’t read him I’d highly recommend — a much easier read than Rothbard, as well.

As for the credit money vs fiat money debate, well, I obviously take a different position than you do. Some people think that there’s a fundamental difference between a piece of paper that represents somebody’s obligation to pay an equivalent amount of goods of some kind, and is thus used as money, and a similar IOU which a government has issued and agreed it will accept for tax payments, purchases, or the payment of legal obligations with itself, and is thus used as money, and, finally, an IOU which a government or government-authorized bank has issued and agreed it will accept for tax payments, purchases, or the payment of legal obligations with itself, and that it also promises to exchange for an equivalent amount of some one specific commodity (usually, gold) on demand. Others think these are variations on a theme. I go for the latter camp myself.

So in the case of Islamic or Renaissance checks, they were generally backed by actual bullion, thus not subject to debasement. In the case of fiat currency, it is linked to nothing, thus it is incredibly tempting for governments to debase via the printing press.

This difference in the security of property seems to me an important distinction between fiat and asset-backed, whereas the physical form of the currency (asset-backed or bullion) does not seem to me a very important distinction.

Where in Adam Smith does he claim that money arose from the spot market and not the credit market? I’ve never heard that argument anywhere.